Flourishing Federal Contractors Help to Fuel Region's Economy

Washington Post Writer; Also contributing to this article was researcher Chapin Wright.

February 17, 1980

In fiscal 1979 the federal government paid private enterprise at least $74 billion, and probably closer to $100 billion, in tax dollars to keep the government running.

Using approximately one out of every five dollars spent that year, the federal government bought a staggering array of goods and services and created a private/public work force that may number as high as 8 million by some estimates.

Federal agencies paid private enterprise to deliver government groceries, to pick up government garbage, to print government forms, to write government pamphlets, to translate government documents, to hold government hearings, to develop government specifications -- and to make government decisions, according to critics.

And in the process, the federal government contributed to the growth of an industry that has been largely undetected but is of surpassing importance in the Washington area's economy -- the federal contractors.

For years it looked as if the label "company town" might come unstuck. The federal work force, bumping up against politically popular personnel ceilings, quit growing. Last year, for the first time, the federal government lost its ranking as the single largest employer in the Washington metropolitan region, the statistics gatherers announced.

But what the figures didn't include was the growth in employment at the government's subsidiaries -- including the firms that have sprung up around the Beltway and along the corridors, the alphabet soup of high-tech companies with names like TRW, PRC, BDM.

In the same year that the federal government's role as a direct employer was declining, it sent billions of dollars rippling through the local economy in government contracts, paying for people who don't show up as federal employes to do federal work for federal dollars.

In fiscal 1979, for instance, $1.78 billion flowed from the Department of Defense into the hands of companies doing defense contracting in this area, creating roughly 70,000 jobs, according to figures in one analysis.

That's more jobs than there are military personnel in the area, more jobs than there are in manufacturing, almost as many jobs as there are in the entire construction industry in the area -- and one out of every 20 jobs in the region.

The military contractors here aren't the Boeings or the McDonnell Douglases or the other better-know defense contractors. They range from A&A Sheet Metal Products to Zytron Corp. -- from Betty's Azalea Ranch to Xerox.

According to Department of Defense records, they sold the federal agency Coca Cola and cartography, typewriters and torpedo components, guided missile launchers and garbage collection, underwater sound systems and athletic equipment.

Although that array of goods and services produced by private companies looks on the surface like a diversified economy, the production is fueled by federal dollars. In fact, according to Robert N. Gold, assistant director for research for the National Capital Planning Commission, federal fuel still drives the region's economy.

"What's changed is the way we do national government," said Gold. Gold and his staff, in cooperation with the U.S. Bureau of Labor Statistics, several years ago analyzed data on Department of Defense contracts to come up with an estimated number of jobs created by it. The Washington Post updated the data to fiscal 1979, using their methods.

"The way we do national government in the United States is with a new kind of governmental federalism," he said. "Thousands and thousands of people" who are not federal workers "earn their livelihood from the performance of national government," Gold said.

That may be good for the area's economy and even may lead to greater deversification eventually. Many firms that are created to serve the federal market -- particularly some of the high-technology firms -- have branched out to sell services and products to the private sector.

It may or may not be good for the taxpayer. Supporters of contracting out argue that it is the cheapest, most efficient way to deliver increasingly complex government services.

Those who oppose some aspects of contracting out, including some members of Congress and the American Federation of Government Employees, "would have us building our own airplanes and tanks," said Earle C. Williams, president of BDM, a major federal contractor supplying technical expertise, research and development. "We can be hired for three months and then go away. It's really the only logical way to avoid increasing buildup of the government bureaucracy."

Rep. Herbert Harris (D-Va.), who along with Sen. David Pryor (D-Ark.) has been one of the most vocal recent critics of federal contracting, counters that since 1970 "we haven't increased government personnel, but the federal budget is up by $350 billion." Some of that money built up a federal contracting bureaucracy that has gone largely unnoticed, according to Harris and others.

Critics also have raised questions about conflicts of interest and cost overruns and questioned whether government is losing the ability to govern by contracting out so many of its functions.

Arguments over the role of federal contracting have raged for years. In the meantime, federal contracting has become a large and important sector of the area's economy. "Half of my district is federal employes. The other 50 percent work for federal contractors, I swear it," said Harris.

The companies that depend on federal contracts for all or part of their livelihoods range from the homely to high-powered companies like BDM.

BDM is a professional services firm. "We never refer to ourselves as consultants at BDM. Never," said Williams. "We get called all kinds of things, like Beltway bandits," he said. Although Williams initially was amused by the phrase used to describe the consulting firms that located around the Beltway, he isn't any longer. "It's been picked up by people who think government should do everythin. They've used the phrase to prejudice the issue," he said.

BDM sits in an industrial park near Tyson's Corner where a number of contractors who deal largely with the Department of Defense and more recently the Department of Energy are located.

Another cluster of companies, primarily firms involved in life sciences research, grew up in Rockville close to the Parklawn Building where Food and Drug Administration offices are located and near the National Institues of Health. Data-processing companies are scattered all over the map.

The largest firms tend to be located in the suburbs. "Recruiting people from the rest of the country and moving them into D.C. would be a very difficult propostion," said Williams. "The perception of the District in the nation is that it is not a desirable place to live."

The names of some of the bigger contractors who provide the fancier services often don't convey much sense of what the companies do. Beltway commuters may pass their buildings for years without a sense of what is produced inside.

William said he frequently is asked: "What's a BDM?" The initials stand for the names of three physicists who founded the company.

In fact there is a rabid desire for anonymity among many of these firms. "In this business anonymity is asset," said the vice president of one company, declining an interview. That desire for anonymity has been added to by frequent attacks on "consultants."

"Part of the reason people are scared of us is they doesn't know anything about us," said Williams.

The term "professional services," which Williams prefers to "consultants," doesn't convey very much, in part because the industry is in its infancy, he said. "It really only grew up after World War II" and expanded rapidly after the war in Vietnam, he said.

BDM provides research, analyses, designs, experiments and tests in areas including national defense, energy, environment, transportation, communications and public policy. In fiscal 1979, it performed $24 million worth of services for the Department of Defense, according to DOD records. w

On the other end of the scale were firms such as Atlas Stump Removal Inc., which earned $27,000 for tree thinning in Washington, according to the DOD computer printout on contracts. Betty's Azalea Ranch earned $23,000 for landscaping and groundskeeping at Andrews Air Force Base, according to the same document. And Frankie Welch, an Alexandria dress and scarf designer, earned $10,500 producing synthetic silk scarves for the Marines, personally designed by Welch. "I've done all the services," she said.

According to DOD records, the largest defense contractor in the area is IBM, with contracts worth $226 million for fiscal 1979. Some of the money was for commercially available IBM products and maintenance supplied through IBM outlets in this area. Most of it, however, was for research, development, testing and evaluation.

That type of work is performed at two IBM federal systems division racilities. One, in Manassas, employs approximately 2,000 workers and is primarily involved in development of shipboard command, control and communications systems, according to a company spokesman.

The other facility in Gaithersburg employs approximately 1,000 workers and is involved in command control and communications systems for Defense and the National Aeronautics and Space Administration.

Not only private firms rely on government contracting. The area's colleges and universities receive substantial funds for research, tuition and training programs. Even the D.C. public schools received $12,000 for training during fiscal 1979.

Associations such as the Metropolitan Washington Council of Governments and the National Governors Association also work under federal contracts. The National Governor's Association got $25,000 from the Army Corp of Engineers to identify what steps the federal government should be taking to improve planning and implementation of major federal works programs and to improve coordination with state and local governments.

"DOD is one of the world's largest markets," said Williams, an observer of the growth of federal-related business. "That's why the businesses keep coming here."